One hundred thousand dollars. Since the 1980s, the magical "six-figure" salary has been a benchmark for financial success. Not too long ago, that income often meant two nice cars in the garage of a large house, fun family vacations and plenty of money left over to save for retirement and college tuition.
But times have changed. Not only has standard inflation steadily eroded the real value of a $100,000 income, the costs of housing, health insurance and college tuition have risen dramatically in recent years. Consider the rising costs of food, energy and the necessities of a middle-class life and that six-figure luxury quickly turns to six-figure mediocrity.
Less than 20 percent of American households even break the six figures, but many who earn incomes near the mark find that their prized incomes don't take them as far as the hype. Many say that while breaking the $100,000 annual income mark may still be an impressive milestone, it doesn't exactly roll out the red carpet.
Costs eat away at benchmark
According to the U.S. Census Bureau, only 5.63 percent of individual income earners and only 17.8 percent of households had incomes of $100,000 or more in 2006. In fact, the median annual household income for 2006 was $48,021, a little less than half of the six-figure benchmark. The overwhelming majority of Americans still look up to a $100,000 income, but the expectations of what comes with that income are rapidly slumping.
The Labor Department recently revealed that the inflation rate for 2007 was the worst in 17 years, with consumer prices rising 4.1 percent, compared to 2.5 percent in 2006. Much of this was fueled by energy costs (up 17.4 percent for the year) and food costs (up 4.9 percent for the year), both of which were the biggest increases since 1990. Just to keep up with standard inflation, a $100,000 salary in 1990 would have to be $162,760 today. Or reversing the view, a $100,000 salary in 2000, adjusted retroactively for inflation, would be worth only $82,609 today.
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"What would have cost you $100,000 in 1976 would cost you $381,000 today. That's just the inflation, and there are so many other things that have grown very expensive," says Mari Adam, Certified Financial Planner and president of Adam Financial Associates in Boca Raton, Fla.
Adam points to health care as a major expense that has grown almost twice the rate of inflation. The Kaiser Family Foundation, which tracks the costs of health insurance, found in 2006 that insurance costs had increased by a whopping 78 percent since 2000. The total cost of health insurance now averages $4,242 per year for individuals and $11,480 for families. Adam says college costs have also grown tremendously in recent years. According to the College Board's annual "Trends in College Pricing" report from last year, published tuitions at universities are up 35 percent in five years, the largest increase of any five-year period in the 30 years the report has been published.
"These are things that everyone spent money on 30 years ago, but the percentage of what was going out of their paycheck is a lot higher now. More of the income is being taken away to pay for a lot of these things," says Adam.
The cost of housing has also played a major role in diminishing the power of a six-figure income. In many parts of the country, housing prices have outpaced wage growth for almost a decade. The Housing Affordability Index, which compares the cost of housing against median family income, dropped considerably between 2000 and 2007. In 2000, the median family income was $50,732, and the median home price was $139,000. While median income grew to $59,157 in 2007, median home prices skyrocketed to $229,299. In those years, median home prices had risen 64.8 percent while median incomes had risen only 16.6 percent.
"Without a doubt, the housing situation is the biggest thing that eats into our income," says Brian Neale, an investment manager from Westminster, Md.
Money doesn't go far
Neale, 33, says he surpassed the $100,000 mark last year but that between mortgage payments, the high price of heating fuel, gas, food and everyday items, his salary doesn't go as far as he thought it would. Neale is married with three children and says that his extracurricular real estate and investment activities help them buy the extras in life.
"Not All It's Cracked Up To Be....Read More